Which? says there is a lack of clarity over financial services including will writing. Photograph: Jonathan Hordle/Rex Features

Thousands of people are being ripped off by unregulated claims management and will writing companies, the legal ombudsman has said in his first annual report.

Chief ombudsman Adam Sampson called on the government to take urgent action to make sure consumers are not left confused and vulnerable by unregulated companies.

The consumer organisation Which? and the Law Society backed the claims and called for more protection for customers.

They said the increased bundling of legal services with financial services and other products, including more being offered via the internet, posed serious dangers for consumer protection.

The ombudsman said that since becoming operational late last year his office had been contacted by 38,155 people and had accepted 3,768 cases for investigation. One in five cases involved conveyancing, 19% were about family law and 13% involved will writing.

Sampson said: "One service which crops up a lot is will writing. It is a service carried out often by will writing firms who aren't regulated. Because of this, customers are left with little means of redress when things go wrong.

"We have seen similar confusion about claims management companies, with lots believing they are getting a legal service even though most of the work is carried out by a non-authorised person. Again, we can't help."

Which? executive director, Richard Lloyd, said: "As the legal services market continues to grow in both size and complexity, it is crucial that consumers who have paid for a legal service that is not up to scratch know where to turn to get help.

"We want the government and regulators to wake up to the current lack of clarity and to provide a clear and straightforward route of redress for consumers.

"The arrival of a legal services market in which consumers will, potentially, have complaints about 'hybrid' services poses some serious questions about who they will be able to turn to for help."

Des Hudson, chief executive of the Law Society for England and Wales, said the gap in regulation was damaging to solicitors, who faced competition from unregulated firms.

"It is also damaging to consumers because the unregulated providers are not insured, do not provide a compensation fund and are not covered by the legal ombudsman's scheme for consumer redress," he added.

On 14 July the Legal Service Board announced a statutory investigation into the will writing market after a mystery shopping exercise revealed malpractice among some unregulated firms.

An estimated 180,000 wills are written each year by unregulated services, and Dr Dianne Hayter, chair of the Legal Services Consumer Panel, said a will could have huge personal and financial consequences for families.

Speaking as the investigation was announced she said: "It is vital that advisers do a competent job, especially since any defects are unlikely to be discovered until it is too late to fix them."

A spokeswoman for the Ministry of Justice said the government would await the results of the investigation.